The Market's Bouncing Big

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I was too busy with work to get orders in, but I have been dangling lowball offers all week because you can really smell the panic these days. (Some have tripped.) When your relatives start calling you to ask if they should take their money out of banks, you know the fear is rampant. When fear is that widespread, you know people aren't thinking straight.

It's uglier now than it's been for a while, but I've been buying throughout the recent cycles of turmoil, and encouraging others to do the same. (Don't look to my Caps scorecard for those kinds of investing ideas, by the way. I play the gut in Caps, and suffer or succeed in the pain-free virtual environment.)

Let's lay out a few broad hypotheses that inform my "steady as she goes" investing program:

1) World economy. Sure, things will slow, but does anyone really expect major infrastructure and development to dry up in Asia and anywhere (I'm thinking African nations here) that gets some of the Chinese Halo effect? Think they won't need heaps of metal and fuel? Me neither. I'm looking more and more at providers in those areas, equipment makers, oil services, and other companies that have recently been hammered.

2) The giant pool of money. OK, we all know the "giant pool of money" was partially responsible for the amazing worldwide credit bubble that centered on housing and various mortgage-backed derivative securities. This giant pool of money still exists, and it's looking for returns. I submit that long term, one of the places it must go is into U.S. equities, as we have some of the strongest multinational corporations in the world, and -- financial industry meltdown notwithstanding -- some of the best regulation and transparency you can find. The money's hunkering down now, but it will be back.

3)What recession? Don't get me wrong, I think we've got a recession, or something close enough that we need not parse words. But I still believe it's a different kind of recession. They're all different, of course, and I read a great article a while back that explained that each is the deflation of a bubble in a specific sector or sectors of the economy. There are halo effects of course, but everything doesn't suffer the same degree of pain. People who talk about this new Great Depression haven't paid much attention to the old one. Consumers will be pinched, but the likelihood that they are decimated as they were in the 20s is next to zero. We live in a time when food costs and other necessities, even after recent inflation, still represent a much smaller portion of income. In other words, it would take something a lot scarier than what we're seeing now to get us to GD2. That, in my opinion, means consumer-facing companies will not see demand drops of the magnitude that many fear -- and that fear is now priced into plenty of great companies' stocks.

4) Things are really different this time. Back in the good old days, recessionary environments absolutely creamed companies as inventories and other stagnating working capital twiddled their thumbs while fixed expenses chopped businesses to bits as revenues dropped. Today, major manufacturers are much leaner and meaner than in years past, and more flexible staffing and supply-chain management tend to mitigate risks that, in times past, led much more quickly to business-killing liquidity issues. This smarter management isn't everywhere, of course, but as investors who look at the trees, not the forest, I'm confident we can find the companies that stand the best chance of surviving in the upcoming and ongoing storm.

Anyway, I think those four themes help explain why I don't feel any panic at all these days, despite the fact that I've got what for me is a giant pool of money bouncing around the market. I'm actually very enthusiastic about the opportunities we're seeing, and will likely continue to see. But then my eyes are focused several years down the road. If your time frame is next week, you'll need to get your comfort from someone else.

I'm with you seth. This is a FIRE/government economy recession, not a Production/Consumption economy recession, although the P/C is getting hit at the margins, I do believe investing in real, solid companies with good management is a winning strategy right now. MMM, VE, SU, CNQ, PM, MO, TGT, RIO, JNJ, DD, PG... on and on.

Although I still don't think we're in real panic mode yet. The Dow went down huge b/c AIG is toast and AIG is (or was) a huge part of the Dow30. The S&P hasn't gone under 1100, that's a bigger level I'm looking at. I think we're at the beginning of a panic - it's still all setting up for a trading curbs day in October, with an "emergency" Fed rate cut by 50 bps or more.

Still keeping my powder dry.

BTW Seth, why wouldn't we look at your caps page? you are one of the highest ranked players out there.

I might be the last one, but I'm looking at investment banks. GS and MS are selling for a pittance right now, but someone will eventually need the services of investment bankers at some point in the future. With BSC and MER being acquired by titanic-sized institutions and Lehman being close to rigor mortis, I think GS and MS will thrive 3-5 years down the road.

I'm also looking at GMS. The financials look like a used diaper, but I think these b@stards will eventually manage to get bailed out. The thing though, is that the company doesn't have to report a profit for GMS to return 18.75%, all they have to do is avoid BK. And at 40¢ on the dollar, how much do you lose in case of bankrupcy?

I might be the last one, but I'm looking at investment banks. GS and MS are selling for a pittance right now, but someone will eventually need the services of investment bankers at some point in the future. With BSC and MER being acquired by titanic-sized institutions and Lehman being close to rigor mortis, I think GS and MS will thrive 3-5 years down the road.

I'm also looking at GMS. The financials look like a used diaper, but I think these b@stards will eventually manage to get bailed out. The thing though, is that the company doesn't have to report a profit for GMS to return 18.75%, all they have to do is avoid BK. And at 40¢ on the dollar, how much do you lose in case of bankrupcy?

Your attitude is spot on for those of us with plenty of time and a cash flow positive lifestyle. For the first time in our lives, things are getting cheap.

I haven't sold anything, and have been adding a bit to existing positions in the chaos. I'm hanging onto about a 10% cash position in case things get really scary. It is scary out there, but not terrifying, yet.

That said, I've been using the selloffs to load my caps profile with all the oil services companies I should have green thumbed 18 months ago. So far, so good because I'm back in the top 1% after recent decimation to my score.

Good points Seth. I agree with your assessment. I was out to lunch with a guy Tuesday who was wondering if now was a good time to pull everything out of the market and sit in cash. Made me think that a lot of other people were probably thinking the same thing and that this is probably a great time to be buying stocks.

I too started buying long term holds on Monday after trading long and short all year.... however, at the end of yesterday I bought an ultrashort hedge... the market is going to explode, but given the way the market is... it will give a lot back at some point and I can't see how anyone plays this market unhedged (eg. either writing calls on their long positions, buying puts or buying ultra shorts)...

the next few years you are going to see feeble world growth due to higher taxes to cover the bailouts or for those who want to print money to shrink their debts... inflation.... as much as the shorts are pissed about the fed intervention... stagflation and recession are better than depression

I wasn't selling! I did take a little off today, 900 pts is too much, and not indicative of a bull maret.

I did do some buying, CHK, MDR, PPH, etc etc, but in retrospect I should have bought more. I missed Pm which I really wanted. Oh well, opportunites are...you know the drill. Still 60% cash.

Also, today I nibbled on GLD and GDX. They weren't at the party, and that's what I like. Sooner or later the market is going to see creeping inflation return, and secondly, the TLT is HIGHLY overvalued. I missed TBT again!!!!